If the demand for reserves intersects the vertical portion of the supply for reserves, the equilibrium federal funds rate is less than or equal to the discount rate.

Question

Quizplus · Accepted Answer

The vertical portion of the supply curve for reserves indicates that the supply is fixed. If the demand intersects here, the federal funds rate is determined by the demand for reserves and is typically less than or equal to the discount rate, which acts as a ceiling.

If the Demand for Reserves Intersects the Vertical Portion of the Supply